Midill (97PL) Ltd. v Park Lane Estates Ltd & Anor

I shall refer to the parties as respectively Midill, Park Lane, and Gomba. Park Lane was a company wholly owned by Gomba, whose only asset was a property at 97 Park Lane, London. On 24th December 2005 Midill agreed to pay Gomba £4,000,000 for all the shares in Park Lane. The completion date was 8^th April 2006. The price was to be paid in three tranches: £400,000 as a deposit on signing the Agreement, £800,000 on 8 February 2006, and the balance on completion. The first two tranches were paid. Midill was unable to complete on 8 April. Gomba served notice to complete on 11th April, requiring completion by 27^th April. They were unable to do so. On 5th May Gomba sought to rescind. Midill responded by alleging invalidity of the notice to complete. After further abortive negotiations, on 14th September 2006 Park Lane sold the property to an unconnected company for £4,300,000.

Gomba has since repaid the £800,000. The issues before us are related solely to Gomba’s right to retain the £400,000 as a deposit. The judge (Judge Mackie QC) rejected Midill’s claim that Gomba had itself not been “ready, willing and able” to complete at the relevant time. He further declined to exercise his discretion under section 49(2) of the Law of Property Act 1925 to order repayment of the deposit.

By its notice of appeal Midill sought to challenge both conclusions. Permission to appeal was granted by Thomas LJ on the section 49(2) issue on 28^th April 2008. There is a dispute about the scope of his decision on the other issues.

The details of the agreement are set out in the judgment. It incorporated conditions 6 and 7 of the Law Society's Standard Conditions of Sale (4^th Ed), which dealt respectively with “completion” and “remedies”. By clause 6.8.1, at any time on or after the completion date, “a party who is ready, able and willing to complete may give the other a notice to complete”. By clause 7.5.2, if the buyer fails to complete in accordance with a notice to complete, the seller may rescind the contract, and if he does so “he may (i) forfeit and keep any deposit and accrued interest, and (ii) resell the property…”

Clause 5 of the agreement, which the judge described as “the provision most at issue in this case”, contained detailed provision for completion, taking account that what was involved was a sale of shares in a company, rather than a simple sale of land. It provided, for example, for the delivery by the seller of duly executed Buyer Stock Transfer Forms in respect of the Shares in favour of the Buyer, with certificates for all the Shares; for resignations of the Directors and Secretary of the Company; and for a board meeting at which nominees of the Buyer would be appointed as additional directors and secretary, and resignations of the retiring directors would be accepted

Midill conceded that it was not ready, able and willing to complete on 8th or 11th April or on a date within the period of the notice to complete. The issue therefore was Gomba's readiness to complete on 11 April and in the period up to 27 April.

It was common ground that it was necessary for the seller to remain ready, able and willing throughout the notice period. The judge accepted, following Blackburne J in Aero Properties Ltd –v– Citycrest Properties [2002] 2 P&CR 21, that it was sufficient that the vendor should "be able within the time reasonably required to do so to set up the necessary administrative arrangements to enable completion to take place…” (para 24) He also regarded it as clear “from Aero and from principle” that the burden of proof lay on Midill, as the party seeking to establish that the other was not ready, able and willing to complete.

The judge heard evidence from a Mr Keith Gregory for Midill, but noted that he had had little involvement with efforts to complete the transaction. For Gomba he heard four witnesses, including Mr Anthony Simmons and Mr Neil Aspess, both partners in David Wineman, Gomba's solicitors responsible for the conveyancing.

He dealt briefly with the position on 11 April:

The position as at 27 April, the notice completion date, required a fuller review of the evidence. For present purposes it is important to note the judge’s preliminary comment:

The judge was unimpressed by concessions extracted from Mr Aspess in cross-examination, directed to his lack of direct recollection of the documentation, including the stock transfer form. He attached more importance to a memo dated 27^th April, but left by Mr Aspess before he went on holiday on 25^th April, briefing his colleague Mr Vivian Wineman to deal with a possible completion in his absence. That memo addressed specifically the completion requirements under Clause 5 of the Agreement. It confirmed that the solicitors held the statutory books and that he had a signed stock transfer form and share certificate. The judge thought it “most unlikely” that Mr Aspess did not have the relevant documents, correctly executed, at the time he dictated the memo.

He concluded:

The judgment was given in January 2008. Midill gave notice of appeal on three grounds. In summary:-

The judge erred in law in finding that the burden of showing that a vendor was not ready, willing and able to complete fell on the purchaser.

In any event, the judge should have found that on the balance of probabilities there never was in existence a stock transfer executed by a Director and the Secretary of the vendor.

The judge erred in principle in declining to exercise his discretion to order repayment of the deposit under section 49(2).

The application was considered on the papers by Lord Justice Thomas who on 28^th April 2008 gave permission, with the following comment:

Since these documents were filed with the court during the vacation, it is perhaps not surprising that they did not come to the attention of the members of court until the day before the hearing. Subject to one minor point on the burden of proof ground, the proposed amendment was opposed by Gomba. Mr Crampin for Midill renewed the application to amend at the beginning of the hearing. We refused it, indicating that we would give our reasons in the judgment.

The application to amend raises implicitly a preliminary issue, as to the scope of the grant of permission. With respect to Thomas LJ, it would have been clearer if he had dealt specifically with each of the three numbered grounds in the Notice of Appeal. However, from his comment, it is to my mind reasonably clear that he intended only to grant permission on ground 3, relating to section 49, and to adjourn ground 1, described as “the issue on the burden of proof”.

The inference I would draw is that he intended to refuse ground 2, rather than adjourn it. In no sense can it be described as “an issue on the burden of proof”. At best, from the applicants’ point of view, it was unclear what his intention was in relation to ground 2. On either view, it was incumbent upon them, if they wished to maintain that ground, to take immediate steps to renew the application, or to clarify the position. The purpose of the permission to appeal stage is to ensure that all parties, including the court, are aware of the issues in play, well before the preparation for the appeal. Here no good reason has been given for not observing that discipline.

The same applies to the application to amend the grounds. The normal course is for the proposed grounds to be put fully before the Lord Justice who considers the application for permission to appeal. The court will be very reluctant to allow amendments at a late stage for no good reason, particularly if they risk widening the scope of the appeal and increasing the time required for the hearing. In this case the proposed amendment would widen a relatively narrow attack on one issue of the factual findings, to a general attack on the judge’s factual conclusions. Such a challenge always involves an uphill task, where the judge’s conclusions depend to a significant extent on his view of the witnesses and the effect of cross examination. It would in my view have added substantially to the time for the appeal.

In my view both the application to reinstate ground 2, and the application for permission to extend it by ground 2A, are far too late, and should be refused for that reason alone.

I turn to the adjourned application for permission to appeal on the burden of proof issue. Having heard Mr Crampin, we indicated that permission would be refused for reasons to be given in the judgment.

He had submitted that, in the absence of binding authority in this court, the issue of burden of proof should be decided by reference to “fairness, justice and common sense”. He relied on the general principle that “he who asserts must prove”. A completion notice under condition 6.8.1 contains an implied assertion by the giver that he is ready to complete, and accordingly, where that assertion is put in issue, it is for him to prove it. There is no presumption that the notice is correct. Requiring the recipient to prove the giver’s non-readiness is unfair, since it requires him to prove a negative; and unrealistic since the relevant facts will normally be within the peculiar knowledge of the giver. He referred by way of analogy to a 19^th C case, relating to a notice to renew a lease (Finch v Underwood (1876) 2 ChD 310). (I say at once that I do not find the analogy helpful in this very different context.)

I see some theoretical force in these submissions. Under the applicable condition the right to serve a completion notice is given to a party “who is ready, able and willing to complete”. The service of such a notice can be said therefore to carry with it an implicit assertion to that effect. If the truth of that assertion is put in issue, it is not unreasonable to expect the giver to be able to justify it. To that extent, I am prepared to assume that he carries at least some obligation in subsequent proceedings to call evidence to support his position, and that he cannot simply rest on the notice. Although the judgment of Blackburne J in Aero Properties contains statements suggesting that the burden of proof lies on the recipient of the notice, there does not appear to have been any argument on that point, as a distinct issue of law.

In any event, I am not persuaded that this point gives Midill any realistic basis for challenging the judge’s decision in this case. As so often, it is unhelpful to separate the issue of burden of proof from the context. The test laid down by the condition is not black and white. In this case, it was further complicated by the special requirements of clause 5 for the sale of shares in a company, and the practical need for co-operation between the parties on certain aspects.

As I read it, the judge was satisfied that Gomba was ready to complete on the 11^th April. That is clear from paragraph 16, in which he compares the specific evidence of Mr Simmons and Mr Aspess to that effect, with the generalised assertions to the contrary of Mr Gregory. His reference in the following paragraph to the burden of proof reads as a makeweight, rather than an essential part of the reasoning. The position on 27^th April was understandably less clear-cut, for the reasons the judge gave. But he was satisfied that Gomba had gone as far as was reasonable to prepare themselves to complete, had there been any likelihood of this happening.

Mr Crampin points to the italicised words in the passage quoted above, as a finding that the required documents had not all been “prepared to the right standard” by 27^th April. However, the judge was right to see this against the background of the mutual duties of cooperation imposed by the agreement. He had already found that Gomba would have been able to set up the necessary administrative arrangements to enable completion to take place “within the time reasonably required to do so”, and that all the relevant documents were available other than those for which Midill’s co-operation was necessary. This is enough for Gomba’s purposes. In context, again, the references to the burden of proof seem to me no more than makeweights.

It follows that the only live issue in the appeal is that relating to section 49(2) for which permission was granted by Thomas LJ.

The claim for return of the deposit ultimately rested on section 49(2) of the Law of Property Act 1925. Section 49(2) provides:-

The judge noted the differences of emphasis expressed in the various authorities and textbooks on the width of the discretion, but regarded the judgment of this court in Omar v El Wakil [2001] EWCA Civ 1090, as providing the most authoritative guidance, in particular as requiring something “exceptional” to justify ordering return. He concluded:

Mr Crampin submits that the judge took too narrow a view of his discretion. He urged us to follow the view of Buckley LJ (Universal Corp v Five Ways Properties Ltd [1979] 1 All ER 552, 555e that the discretion is a wide one, to be exercised “in any circumstances which make this the fairest course between the two parties”. The judgment of Arden LJ in Omar v El-Wakil does not purport to redefine the scope of the discretion; it merely gives some non-binding guidelines for its exercise. The judge was wrong to treat them as constraining his discretion, or as indicating that it was irrelevant that the vendor had made a profit on resale. That was inconsistent with the approach adopted in Dimsdale Developments (South East) Ltd v De Haan (1983) 47 P&CR 1, which was approved by Neuberger J in Tennaro Ltd v Majorarch [2003] EWHC 2601.

Mr Steinfeld, for Gomba, submits that the judge exercised his discretion in accordance with the most recent authoritative guidance of this court in Omar, and that the judgment discloses no error of law or principle.

For a section which has been on the statute book for over 80 years, the learning in respect of section 49(2) remains surprisingly incoherent.

A contractual provision for a deposit on the sale of land was a long-established (albeit anomalous) exception to the ordinary principles governing penalties in contract:

In line with this principle it was held in a series of 19^th Century cases that, even where specific performance was refused to the vendor because the title was wholly defective, the purchaser might be left unable to rescind by the terms of the contract, and therefore unable in law to claim return of the deposit (see Megarry & Wade Law of Real Property para 15-80). As was said in the leading case:

The immediate purpose of section 49(2) was to correct this apparent injustice. That appears from Sir Benjamin Cherry’s own commentary (in Wostenholme & Cherry Conveyancing Statutes 12^th Ed (1932), cited in Megarry & Wade para 15-111). However, that does not explain the apparent width of the discretion, as expressed in the statute.

Since then the jurisprudence has followed an uncertain course. In the first 50 years of its life, the section remained “remarkably quiescent”, as Megarry J observed in Schindler v Pigault (1975) 30 P&CR 328. In the only reported case in the Court of Appeal, James Macara v Barclay [1944] 2 All ER 31, the court found it unnecessary to express a concluded view as to the scope of the section. The decade from 1975 to 1985 saw a sequence of cases which yielded a range of views but no binding authority. A significant Privy Council decision in 1995 went unreported and was ignored in later authorities. In Omar in 2001 a majority of this court laid down certain principles for the purpose of dealing with the very unusual facts of that case, but apparently without having had any assistance from counsel or citation of authority on the point. Since then there have been some cases at first instance, including notably Tennaro, a decision of Neuberger J. The textbooks generally favour a broad approach, but without any consistent underpinning of principle. Although detailed analysis may be unnecessary for the purpose of deciding this case, a review of the authorities (including some not cited to us) may be helpful in order to reduce uncertainty in the future.

The first substantive discussion of the section came in Schindler in 1975. The facts were that the purchaser had failed to comply with a vendor's notice to complete, for reasons which were partly attributable to the vendor’s failure to provide access to the property for an intended sub-purchaser. Megarry J held that the purchaser was entitled to rescind, but, even if that were wrong, it would be “just and equitable” for the deposit to be returned. He made some general comments about the effect of the “few” authorities:

Later in 1975, but without reference to Schindler, Goff J decided Michael Richards Properties Ltd v St Saviour's Parish, Southwark [1975] 3 All ER 416. The purchaser had refused to complete after discovering that the local authority intended to acquire the property compulsorily. The judge refused to order return of the deposit, saying:

In Cole v Rose [1978] 3 All ER 1121, where the vendor had purported to rescind the contract and retain the deposit, while selling to another purchaser at a higher price, it was held that the purchaser was entitled to return of the deposit, because the notice to complete had been ineffective. It was unnecessary, therefore, for him to rely on section 49(2). However, the judge (Mervyn Davies QC) indicated that he would not otherwise have ordered return of the deposit. Having cited the above passage from Schindler he said:

In Universal Corporation v Five Ways Properties Ltd [1979] 1 All ER 552, the purchaser, a Liberian company, required money from their Nigerian bank to complete the contract, but due to a change in the exchange control regulations they were unable to arrange the transfer of the moneys in time. The vendor rescinded the contract and forfeited the deposit. The purchasers obtained the money twelve days later, and issued a writ claiming repayment of the deposit with interest under section 49(2). Walton J struck out the claim, but this Court allowed the appeal on the basis that the claim was not unarguable. It had become clear by the time of the Court of Appeal hearing (but not before Walton J) that the vendors had been aware that the purchasers needed to bring funds from Nigeria (p 555h). Walton J had held that, having regard to the structure of the section and its history, it should be treated as applying only to the type of case to which it had originally been directed, where the vendor was unable to obtain specific performance; or alternatively it must be severely limited so as to apply only where the vendor had been party to some conduct which was “not straightforward” or “tricky”, or had “some other mark of equitable disfavour attached to it” ([1978] 3 AllER 1131, 1137f-j).

In the Court of Appeal, Buckley LJ thought this approach was too narrow. The section conferred a discretion unqualified by any language, albeit –

The last case in the sequence is Dimsdale Developments (South East) Ltd. v De Haan (1984) 47 P. & C.R. 1. The contract provided for sale of a freehold for £122,250, and a 10% deposit was paid. Completion, originally fixed for 28 October 1981, was delayed because the purchasers had difficulties over planning and finance. Eventually in January 1982, after a notice to complete was not complied with, the vendors informed the purchasers that they regarded the contract as repudiated, and in February they sold the property to a third party for £140,000. They incurred a total of £6,500 in fees and interest. The purchasers applied for return of their deposit. The judge (Gerald Godfrey QC), applying a wide view of section 49(2), held that the deposit should be returned, but only after allowing a deduction to cover the defendants' losses of £6,500. He made clear, however, that he was adopting this wide approach with reluctance. He did so “loyally” following the line taken by Buckley LJ, even though he thought that Buckley LJ had misinterpreted the judgment of Megarry J. He read Megarry J’s reference to the need to make out “a proper case” under section 49(2) as being in accord with Walton J’s approach, and also with that expressed by Mervyn Davies QC in Cole v Rose, an approach which he personally preferred (pp 11-12).

Against this somewhat confusing background, it is surprising that more attention has not been paid to the Privy Council decision on the identical provision in a Trinidad and Tobago statute: Bidaisee v Dorinsa Yusidai Sampath & Ors Privy Council Appeal No. 33 of 1993 (Lords Goff, Mustill, Slynn, Nicholls and Steyn). Although the case is unreported, it is noted in the textbooks, and the judgment is obtainable from the Privy Council.

The contract was for the sale of a half share of land to the co-owner for TT$2 million, and a deposit of 10% was paid. After notice of completion was not complied with, the vendor sold his half share to third parties for TT$2.5 million. There were arguments as to the validity of the notice, which were not upheld. The third ground of appeal related to the court’s refusal to order return of the deposit under the equivalent of section 49(2). The refusal was upheld by the Privy Council whose Opinion was delivered by Lord Nicholls. He noted that the gain represented by the retention of the deposit was offset by the amount of interest (“some $250,000”) which he would have received if the sale had been completed on time. He continued:

I come next to Omar v El-Wakil on which the judge principally relied. The case was not concerned with a typical deposit under a contract for sale of land. The facts were complicated, and the evidence confused. In simple terms, two agreements were signed on 22 January 1992. By one, Omar sold a car-hire business to a company controlled by El-Wakil for £110,000. By the other (“the Corringham contract”), El-Wakil sold to Omar a property for £350,000, of which £110,000 was to be paid on signing the contract, and the balance on completion. The transactions failed for various reasons, for which both parties were in part responsible. One issue was whether Omar should be treated, by virtue of the first agreement, as having paid a deposit of £110,000 under the second, and if so whether the court should order it to be repaid by El-Wakil under section 49(2).

Arden LJ gave the leading judgment, the reasoning of which on this point was adopted by Lord Phillips MR. She noted that the court had not been taken to any authorities on the scope of section 49(2), that none appeared in the judgment below, and that there had been no argument on the point. She had herself noted the comments of Buckley LJ in the Universal Corporation case on the width of the discretion, but observed that, since the other member of the court had not expressed a view and the case was an interlocutory appeal heard by two lords justices, the decision was not binding on the court. She also referred to criticisms in the textbooks of the absence of criteria guiding the exercise of the court's jurisdiction, and the support in some for the “generous interpretation” adopted by Buckley LJ (citing Jones and Goodhart, Specific Performance, 2nd ed. (1996) page 305; and Charles Harpum, Relief against Forfeiture and The Purchase of Land (1984) CLJ 134, 172). She continued (paras 35-37):

She then considered the facts of the case in detail, and concluded:

Finally, of the more recent first-instance cases, I need refer only to Tennaro, on which Mr Crampin relies. Three related contracts to grant long leases of three flats in the same block (Nos 37, 32 and 31) were entered into between the vendor (Majorarch) and the purchaser (Tennaro Ltd). Deposits were paid in each case. The vendor served notices to complete in respect of the three contracts and, on the purchaser’s failure to comply, purported to rescind each of the agreements and to forfeit the deposits. Among other arguments, the purchaser sought repayment of the deposits under section 49(2). By way of authority, Neuberger J referred to the comments of Buckley LJ in Universal Corporation, and those of Arden LJ in Omar, which he described as representing “a slightly stricter or, at any rate, a more analytical view” (para 83).

He rejected the claim for return of the deposit in respect of Flat 37 (whose value had dropped by some £400,000), but allowed it for the other two flats. In respect of Flat 32, the benefit of the agreement had been assigned to a third party, who had himself (at “about the time that the contract with the Buyer would have been completed”) made an offer to purchase it for a price substantially higher than the contract price, which had been rejected by the vendor without explanation (para 87-8). Neuberger J added that on this case he “drew assistance” from the judgment in Dimsdale Developments (South East) Limited v De Haan:

In respect of Flat 31, the Buyer had been willing to purchase that flat alone at the purchase price, but the Seller required it to be bought along with Flat 37. Neuberger J concluded “on balance” that in this case also the deposit should be repaid. He noted, in particular, that the Seller had had the opportunity to complete at the contract price, and had not come forward with any explanation of this refusal; and that, on the basis of its then market-value, the flat could have been resold at 15% above the contract price (para 98).

The balance of academic comment appears to favour a wide view of the section (see e.g. Jones & Goodhart Specific Performance 2^nd Ed p 304-5; Treitel, Law of Contract 12^th Ed p 1084-6). The most recent edition of Goff & Jones (7th Ed para 20-035), contrasts the “generous” approach of Buckley LJ with the “stricter view” of Arden LJ in Omar, commenting:

Since Arden LJ’s judgment contains the most recent, considered guidance of a majority of this court, I doubt if it would be appropriate for us to depart from it even if we wished to do so. In fact, as the review shows, her approach is in line with the balance of judicial view, including that of the Privy Council. Buckley LJ’s comments, though of course entitled to great respect, are not binding on us, for the reasons given by Arden LJ. Furthermore, they need to be read in the context of the case before him. He was concerned principally to rebut the very narrow line taken by Walton J, which required some “trickiness” or the like by the vendor. Similarly, Megarry J’s observations on the width of the discretion, whatever their precise intention, must be read as a response to the vendor’s argument that the section only applied where there had been “unconscionable” conduct.

The critical point, on which Arden LJ echoed Lord Nicholls, is that the deposit is “an earnest for the performance of the contract”, which can be retained by the seller if the buyer defaults, without any necessary regard to the question of actual loss or its amount. That principle, as the Privy Council made clear, is not “overruled” by section 49(2). There needs to be “something more”; or, as other judges have said, something special or exceptional to justify overriding the ordinary contractual expectations of the parties.

The cases at first instance should not be seen as altering the principle, but as illustrations of how it has been applied in particular circumstances. The only one which I would respectfully question is Dimsdale, which was decided against the instincts of the judge himself, and without the benefit of the guidance provided in Omar. That view is not altered by the fact that it was relied on by Neuberger J to reinforce his conclusion on the second transaction in Tennaro. The decision on that transaction is readily understandable, given that the relative attractiveness of the alternative offer available to the vendor at the time of intended completion, arranged by the purchaser, and the lack of any stated reason for rejecting it. I find it unnecessary to express a view on Neuberger J’s decision on the third transaction. It is less easy to analyse, since it is not entirely clear whether the vendor had any valid contractual basis for linking Flats 31 and 37.

Against that background, I return to the present case. In my view, the judge’s reasoning was impeccable. He was entitled to find that it was not enough that the vendor sold at a higher price some months after the date for completion. That delay distinguishes the case from Tennaro. There is nothing to suggest that the price rise was exceptional, in relation to movements in the market generally. There is no obvious reason why the purchaser should have the benefit of any such price rise. It was the vendor who had borne the risk and cost of holding the property during the intervening period. I also agree with the judge that to decide otherwise would add undesirable uncertainty to the well-established contractual understanding.

For these reasons I would dismiss the appeal on the issue for which permission, has been given, and refuse the other applications.

I agree.

I also agree.